Hospital Deal Cost Estimate Balloons

By David Nakamura
Washington Post Staff Writer
Saturday, September 1, 2007

The proposed sale of Greater Southeast Community Hospital could cost the District government up to $87 million in public money, roughly $60 million more than initially thought, according to an initial review by aides to Mayor Adrian M. Fenty (D).

The dramatic increase in potential public investment in the failing facility has surprised the Fenty administration and thrust the deal into doubt, even as the prospective hospital buyer -- Specialty Hospitals of America -- presses the city to meet a tight deadline to complete the transaction.

"There are a lot more implications" for the city than expected, City Administrator Dan Tangherlini said. "We've asked a lot of questions, and we're waiting for answers. And we have some suggestions on how to make it a little better in our view."

Greater Southeast is the only D.C. hospital located east of the Anacostia River, serving residents in wards 7 and 8. Once well regarded, the institution has suffered a long decline and is on the verge of financial collapse under its current owner, Envision Hospital Corp.

Under the proposed sale, New England-based Specialty would buy the hospital from Envision and turn it into a "medical mall," expanding the number of beds and offering a range of short- and long-term-care services. The two companies have set an Oct. 30 deadline to complete the sale.

The initial terms made public last week stipulated that the District would be asked to pay roughly $27.5 million to help pay off debt owed by the hospital to its physicians and vendors. However, according to a copy of the contract obtained by The Washington Post, the city is being asked to contribute $30 million to pay for new equipment and facility improvements, as well as $16 million in debt relief for Specialty at the two hospitals it already owns in Washington, among other provisions.

Specialty, by comparison, does not appear to be putting up any of its own money to pay for the deal, according to government sources familiar with negotiations. The company and city have agreed that the public funding would be repaid by the hospital providing uncompensated care to poor and uninsured residents.

Specialty Hospitals Chairman Jim Rappaport disputed the city's analysis of the deal, saying in an interview yesterday, "I don't know where the $87 million comes from."

Although he declined to say how much public money he believes is included in the deal, Rappaport said his company would be incurring significant risk in purchasing Greater Southeast.

"We've already put in over a million dollars in time, effort and expenses, and we'll continue to put in brain power, effort, money and capital into this," Rappaport said. If the Fenty administration is not satisfied, Rappaport suggested, Specialty would walk away.

"We are more than willing to have other people step up and come up with other ideas for a hospital that is on the verge of closing," he said.

The two sides have scheduled additional meetings next week to continue negotiations.

The deal between Specialty and Envision has garnered the early backing of several D.C. Council members, including Chairman Vincent C. Gray (D), Marion Barry (D-Ward 8) and David A. Catania (I-At Large), who chairs the health committee and helped broker the agreement.

In a statement yesterday, Catania said: "Unfortunately, we arrived at this point because the current owner has chronically under-invested in the hospital. It will be a shame if we don't give this transaction a fighting chance because we nickel-and-dime a meaningful investment in equipment and other immediate needs. There are a lot of us who have watched this government spend money on things from Gallery Place to the Mandarin Hotel to the baseball stadium. Investing a fraction of that on such a critical hospital is a bargain at twice the price."

Barry drew a similar comparison, and vowed to "fight to the death to get quality health care" for residents of wards 7 and 8.

"Life is too precious to be worrying about spending money to upgrade the hospital," he said, when money is spent on items of lesser importance, like the baseball stadium.

But government sources said the city must be cautious if it is going to invest such a large sum of money. They suggested that larger health-care companies, including ones with national reach, might be willing to take another look at Greater Southeast if they learn the city is willing to put in close to $100 million.

"That's a possibility, if others see how much is being talked about," Tangherlini said. "If someone . . . thinks they can do better, give us a call."

© 2007 The Washington Post Company